Victory: Gahanna Backs Down on High-Risk Loan Fund

October 18, 2010 – Taxpayer Victory: Gahanna Indefinitely Postpones Ill-Advised $375K High-Risk Venture Capital Loan Fund

Gahanna City Council indefinitely postponed a vote authorizing a city-backed $375,000 high-risk venture capital loan fund after the 1851 Center for Constitutional Law threatened legal action against the city.

Gahanna City Council had proposed an ordinance permitting the mayor to contract with the Economic and Community Development Institute (ECDI) for the creation of a venture capital loan fund. The fund would issue high-interest and interest-only loans to local businesses and individuals considered high-risk by conventional lenders.

During a Sept. 7 council meeting, 1851 Center Executive Director Maurice Thompson advised city officials against the constitutionally prohibited plan. Thompson informed council members that the Ohio Constitution (Section 6, Article VII) prohibits the city from “raising money for or loaning its credit to any private company, corporation or association.” Further, according to Ohio Supreme Court precedent, this constitutional provision is intended to protect taxpayers from the risks associated with the failure of a private project.

After Thompson’s presentation, council members decided to postpone a vote on the ordinance by two weeks while they review the consequences of the impending legal challenge. Council members’ decision to permanently drop the proposal is a significant victory for Gahanna residents, whose tax dollars will not be put a risk under this ill-conceived proposal.

The venture capital fund would have:

• Used tax dollars to fund private enterprise;
• Issued loans to individuals who lack conventional collateral or posed a high risk and may have been turned down by conventional lenders;
• Issued loans at high interest rates of up to 12 percent; and
• Allowed loans to be repaid on an interest-only basis.

In addition, the scuttled ordinance would have allowed the city to recover funds from defaulted loans by seizing an individual’s personal property, including “vehicles, personal items, antiques, collectibles jewelry, or livestock.”